The National Debt: A Moral Issue

The National
Debt is the amount of money that the U.S. government has had to borrow over the
years to pay for the functioning of the government and its programs. It is now
money that is owed to others – foreign governments, individuals and
corporations. Anyone who has bought “Treasury Bonds” or other instruments owns
a piece of this debt, which includes the interest our government must pay on
the debt.

The national
debt is not the same as the “budget deficit,” which is just the planned “red
ink” that is approved by Congress in the process of passing the ordinary
expenditures of the federal government for a particular fiscal year. For
example, this past year (2013) there has been much discussion about
“sequestration” being a blunt tool with ill effects on those who are poor or
needy. Sequestration (an across-the-board budget cut in 2013 of $85 billion on
both defense and domestic appropriated programs -- with some exceptions --to
affect all budgets from 2013 to 2021) was an attempt by some in Congress to
reduce the budget deficit, not the
National Debt.

The Faithful Budget[1], 2014 urged Congress to
replace sequestration in a way consistent with the country’s shared values,
using a balanced approach that applies justice and compassion. While noting the
importance of making judicious cuts to defense, earmarks and other wasteful
spending, the document urged that revenue be increased to serve the whole human
community of our country. Congress was reminded that it had already enacted
over $2 trillion in deficit reduction, over 70% of which had come from spending
cuts affecting domestic discretionary programs (Faithful Budget, 2014, p. 23).

History

In the early
1990s, Congress enacted a law called “pay-as-you-go” that required legislators
to pay for new spending either through other savings or new revenues. This law
was in effect from 1993 through 2002, when the Republican Congress allowed it
to expire.

During the
Clinton years, the annual budget deficits were significantly reduced and in 1998
through 2001 there were actual budget surpluses that allowed some of the
national debt to be paid off. These surpluses also gave rise to the 2001 tax
cuts and Congress’s incentive to disregard the “pay-as-you-go” rules that were
still on the books in 2001 and 2002.

After
September 11, 2001, the U.S. entered into two wars, which the Bush
Administration never considered part of the “ordinary expenditures” of the
government. So they never included the cost of the wars in the federal budget,
and these costs never showed up in projected budget deficits, but as
“supplementals” outside the budget process. Nevertheless, these costs added to
the national debt.

Complicating
the debt problem are several other costs that rose as the decade proceeded. Healthcare
costs dramatically increased during the first decade of this century at rates
higher than the growth rate of the economy. Because of federal expenditures for
Medicare and Medicaid, this growth rate had a large impact on the federal debt.
Another aspect of the debt increase began with the recession in 2007. Actual
federal revenues decreased at a time when the budget had predicted revenue
increases. Stimulus bills that economists credit with saving our economy from
the precipice of a full-blown depression added more debt. It should be noted
that these expenditures actually generated some revenue for the government
through increased employment. These same economists project that the stimulus
bills will have little long-term impact
on the debt because they were short-term payouts that generated economic growth
and higher tax revenue. Finally, Social Security expenditures have increased
dramatically as “baby boomers” have begun to reach retirement age. The pressure
will only rise to pay these obligations as the revenues generated by the
workforce decrease with the aging population.

Current Issues

As of
September 2013, the U.S. national debt ceiling is $16.7 trillion and the
Secretary of the Treasury said the U.S. will reach the limit of its borrowing
authority in mid-October 2013, when the debt ceiling will have to be raised by
Congress. The debate over the debt ceiling is likely to be fraught, as it has
been since 2011.

The growing
national debt has become a major problem for our country primarily because
economic growth has slowed. Since World War II, our country has managed its
debt by continuing to grow the economy at record rates. In an expanding
economy, tax revenues increase, and this allows for investment in the future by
responsible borrowing. As debt increases, the nation must make payments on the
debt. As long as the U.S. can borrow money at low interest rates, these
payments (called debt service) are not too onerous. As interest rates rise, the
U.S. has to pay more money to service the existing debt. Another potential risk
is that if purchasers of U.S. debt (e.g. China and Japan)
begin to feel unsure about the capacity of the U.S. to repay our debt they will
not purchase the debt at low interest rates. They will require a “risk premium”
to protect against the possibility of default. This, too, will raise interest
rates, and the cost of the debt service will increase. For this reason, if for
no other, the U.S. has to be able to maintain its capacity to repay the debt
and not raise international concern about the value of the dollar.

Currently,
the U.S. is carrying debt that is approximately 75% of our Gross Domestic
Product (GDP). The last time the debt was so high was at the end of World War
II when we were still paying for the war, but at that time, nearly all the debt
was held by people in the U.S. who bought "war bonds." In 2002 -- the
last year there was a federal budget surplus -- the debt was 33.6% of GDP.
There seems to be a growing consensus that the U.S. can afford to carry a
maximum debt of about 60% of GDP. Why this amount? It is based on the interest.
The target interest payment (called "debt service") is 2 to 3% of
GDP. The dramatic difference between our actual federal debt and the consensus
debt target illustrates how much work we have to do to get control of our
rising debt.

Starting in
2010, there was a three-year freeze of non-security discretionary spending.
This turned out to be a freeze on less than 15% of the federal budget and it
included human needs programs like housing for low income people. Under the
Budget Control Act of 2011, caps on the same discretionary spending will bring
that spending over the next decade to its lowest level as a share of the GDP
since 1962. While the politics might be good to draw attention to the debt problem,
we know as people of faith that balancing the budget on the backs of poor
people is not just.

Since 2010,
Congress and the president have enacted significant debt reduction through $1.5
trillion in spending cuts for appropriated programs by the use of annual caps
(2011 Budget Control Act) as well as nearly $600 billion in revenue increases
in the American Taxpayer Relief Act (ATRA) of 2012, which made permanent the
majority of tax cuts enacted in 2001 and 2003. Including the related tax
savings in interest payments on the debt, policymakers have achieved about
$2.35 trillion in deficit reduction so far in 2013 (testimony of Robert
Greenstein, President of the Center for Budget Policy and Priorities before the
Senate Budget Committee, Feb. 13, 2013; savings are for the 10-year budget
window of 2013-2022). These savings do not include the controversial savings
from sequestration, which started in March, 2013. They are estimated to be
about $1.2 trillion over the same 10-year budget window, if they are continued
in their present form.

There are
two ways to decrease the federal debt: reduce spending and increase revenue.
Because of the magnitude of the problem we need to do both. One thing we cannot
do is to target poor people for further belt-tightening. Nor can we "leave
our children a legacy of debt" and a "legacy of rising poverty and
growing inequality," as the Faithful
Budget reminds us (p. 52). Instead, spending cuts must be distributed
across sectors of society that can best afford to pay for them.

Finally, we
believe that resources can be found in a fair and just tax system. These
changes will not be easy to achieve, but we must help create the political will
to make them happen. Our political agenda must be focused on the common good,
not just for ourselves but, as our Constitution says, for "ourselves and
our posterity." As people of faith, we have a strong interest in promoting
justice in our society by attending to the needs of those who continue to
struggle in our country.